Consider the following data for Wooster Company. Total variable manufacturing costs, including direct material costs, were $3 per unit; the standard production rate was 10 units per machine hour. For 2008, total budgeted and actual fixed manufacturing costs were $420,000. Fixed manufacturing overhead was allocated using machine hours as the basis with the denominator volume being the annual achievable capacity of 60,000 machine hours. The selling price is $5 per unit. Variable marketing and administrative costs, which are driven by units sold, were $1 per unit. Fixed marketing and administrative costs were $120,000. For 2008, beginning inventory was 30,000 units, ending inventory was 40,000 units, and sales were 540,000 units. The same unit costs (both variable costs and applied fixed overhead) persisted throughout 2007 and 2008.

1. What would the gross margin income statement look like to compute the income before taxes for 2008. Assume that all under/overapplied overhead is written off directly at year-end as an adjustment to cost of goods sold (i.e., compute gross margin and show the under/overapplied as a separate line item to adjust this gross margin).

2. What would the contribution margin statement look like to compute the income before taxes.

3. Do the two incomes in parts (a) and (b) agree? If not, explain why they may not agree.